The Volatility of Mortality
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Daniel Bauer
The use of forward models for the future development of mortality has been proposed by several authors. In this article, we specify adequate volatility structures for such models. We derive a Heath-Jarrow-Morton drift condition under different measures. Based on demographic and epidemiological insights, we then propose two different models with a Gaussian and a non-Gaussian volatility structure, respectively. We present a Maximum Likelihood approach for the calibration of the Gaussian model and develop a Monte Carlo Pseudo Maximum Likelihood approach that can be used in the non-Gaussian case. We calibrate our models to historic mortality data and analyze and value certain longevity-dependent payoffs within the models.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Featured Article
- Longevity Risk and Capital Markets: The 2007-2008 Update
- The Birth of the Life Market
- Mortality Declines, Longevity Risk and Aging
- Financial Innovation and the Hedging of Longevity Risk
- Hedging Pension Longevity Risk: Practical Capital Markets Solutions
- Assessing Investment and Longevity Risks within Immediate Annuities
- Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth
- An Empirical Study of Mortality Models in Taiwan
- Pricing and Implementation of Longevity Bonds in Taiwan
- The Volatility of Mortality
Articles in the same Issue
- Featured Article
- Longevity Risk and Capital Markets: The 2007-2008 Update
- The Birth of the Life Market
- Mortality Declines, Longevity Risk and Aging
- Financial Innovation and the Hedging of Longevity Risk
- Hedging Pension Longevity Risk: Practical Capital Markets Solutions
- Assessing Investment and Longevity Risks within Immediate Annuities
- Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth
- An Empirical Study of Mortality Models in Taiwan
- Pricing and Implementation of Longevity Bonds in Taiwan
- The Volatility of Mortality
